<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 21, 1996
4Front Software International, Inc.
(Exact name of issuer as specified in its charter)
Colorado
(State or other jurisdiction of incorporation)
0-8345 84-0675510
(Commission File Number) (IRS Employer Identification No.)
5650 Greenwood Plaza Boulevard
Suite 107
Englewood, Colorado 80111
<PAGE>
ITEM 2. ACQUISITION OF ASSETS.
On August 21, 1996 4Front Software International Inc., acquired all of
the issued and outstanding stock of Hammer Distribution Limited ("Hammer"),
based in the United Kingdom. The purchase price was L1.85 million cash ($2.9
million) subject to certain conditions as set forth below.
Pursuant to the stock purchase agreement, L1.1 million cash ($1.7
million) was paid to the stockholders of Hammer from available cash resources
of the registrant.
If the profits from the Hammer subsidiary for the year ended January 31,
1997 are L425,000 ($650,000) or greater, then the remaining L750,000 ($1.2
million) is paid. If the profits are less than L240,000 ($370,000) then no
part of the L750,000 ($1.2 million) is paid. If profits are between L240,000
($370,000) and L425,000 ($650,000) then the L750,000 ($1.2 million)
remaining consideration is adjusted downwards to become such lower figure as
represents the same percentage by which the 1997 profits exceeds L240,000
($370,000) in relation to the shortfall of L185,000 ($285,000) from the
L425,000 ($650,000) profits which are required to affect maximum payment.
The purchase price was paid in cash from available corporate funds.
There is no material relationship between the registrant, it's affiliates,
officers or directors and any affiliate, officer or director of Hammer
Distribution Limited.
Hammer is a United Kingdom supplier of storage solutions and computer
sub-systems, with revenues of approximately L10 million ($15 million). The
registrant believes that the acquisition of Hammer will allow the combined
organizations to expand on the market for storage solutions and sub-systems
and to help the registrant to secure a significant percentage of the United
Kingdom market.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Hammer Distribution Limited, the acquired
business
(b) Pro Forma Financial Statements
(c) Exhibits (1)
1. Form of Share Sale Agreement Relating to Hammer Distribution Limited
dated August 21, 1996. (1)
________________________________
(1) Filed as exhibits to the Company's Form 10-Q filed on September 12, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
4FRONT SOFTWARE INTERNATIONAL, INC.
(Registrant)
By: /s/ STEPHEN MCDONNELL
-----------------------------
Stephen McDonnell
Chief Financial Officer
Dated: October 30, 1996
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
HAMMER DISTRIBUTION LIMITED
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets
As of January 31, 1995 and 1996, and July 31, 1996 (unaudited) F-2
Statements of Operations
For the years ended January 31, 1995 and 1996 and for the
six months ended July 31, 1996 (unaudited) F-4
Statements of Stockholders' Equity
For the years ended January 31, 1995 and 1996 and for the
six months ended July 31, 1996 (unaudited) F-5
Statements of Cash Flows
For the years ended January 31, 1995 and 1996 and for the
six months ended July 31, 1996 (unaudited) F-6
Notes to Financial Statements F-7
4FRONT SOFTWARE INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
Explanatory Headnote
Unaudited Pro Forma Consolidated Financial Statements:
Consolidated Statements of Operations
For the year ended January 31, 1996 F-13
Consolidated Balance Sheet
As of July 31, 1996 F-14
Consolidated Statements of Operations
For the six month period ended July 31, 1996 F-16
Notes to Unaudited Pro Forma Consolidated Financial Statements F-17
<PAGE>
HAINES WATTS
INDEPENDENT AUDITORS' REPORT
To the Stockholders
and Board of Directors
Hammer Distribution Limited
We have audited the accompanying balance sheets of Hammer Distribution
Limited a UK Company as of January 31, 1995 and 1996 and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three year period ended January 31, 1996 set out on
pages F-2 to F-11.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described below, these financial statements are the responsibility of the
Company's management. It is our responsibility to form an independent
opinion, based on our audit, on those statements and to report our opinion to
you.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are required to prepare financial statements for each financial
year which give a true and fair view of the state of affairs of the company
and of the profit or loss of the company for that period. In preparing those
financial statements, the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
BASIS OF OPINION
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom, which do not differ in any significant
respect from United States generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation, and of whether the accounting policies are
appropriate to the company's circumstances, consistently applied and
adequately disclosed. We believe that our audits provide a reasonable basis
for our opinion.
OPINION
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of Hammer Distribution Limited
as of January 31, 1995 and 1996 and the results of their operations and cash
flows for each of the years in the three year period ended January 31, 1996
in conformity with United States generally accepted accounting principles.
The accompanying balance sheet of Hammer Distribution Limited as of July
31,1996, and related statements of earnings, retained earnings, and cash
flows for the period then ended were not audited by us and, accordingly, we
do not express an opinion on them.
/s/ HAINES WATTS
HAINES WATTS 29 OCTOBER 1996
CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS
BASINGSTOKE, ENGLAND
F-1
<PAGE>
HAMMER DISTRIBUTION LIMITED
CONDENSED BALANCE SHEETS
(POUNDS STERLING)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash L 306,990 L 353,912 L 216,350
Accounts receivable, net of allowance for doubtful accounts
of L27,887, L45,000 and L60,000 respectively 1,214,497 1,549,428 1,321,804
Inventories 303,803 466,648 538,685
Prepaid expenses 14,468 14,508 16,957
Shareholders advances - - 30,000
Income taxes receivable - 2,672 2,672
Other current assets 37,775 150 300
----------- ----------- -----------
Total current assets 1,877,533 2,387,318 2,126,768
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net 58,312 74,730 80,830
----------- ----------- -----------
TOTAL ASSETS L 1,935,845 L 2,462,048 L 2,207,598
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
F-2
<PAGE>
HAMMER DISTRIBUTION LIMITED
CONDENSED BALANCE SHEETS
(POUNDS STERLING)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable L 989,096 L 1,201,680 L 1,393,927
Accrued liabilities 87,059 83,686 44,128
Notes payable 424,381 742,524 374,908
Capital lease obligations, current portion 9,323 8,180 8,562
Income taxes payable 100,455 89,555 17,830
----------- ----------- -----------
Total current liabilities 1,610,314 2,125,625 1,839,355
CAPITAL LEASE OBLIGATIONS, less current portion 8,718 29,277 24,897
----------- ----------- -----------
TOTAL LIABILITIES 1,619,032 2,154,902 1,864,252
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, no par value 500,000 shares authorized 12,500,
11,875 and 11,875 shares issued and outstanding, respectively 12,500 11,875 11,875
Additional paid in capital 875 750 750
Capital redemption reserve - 750 750
Retained earnings 303,438 293,771 329,971
----------- ----------- -----------
Total stockholders' equity 316,813 307,146 343,346
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY L 1,935,845 L 2,462,048 L 2,207,598
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
F-3
<PAGE>
HAMMER DISTRIBUTION LIMITED
CONDENSED STATEMENTS OF OPERATIONS
(POUNDS STERLING)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JULY 31,
1994 1995 1996 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES L 4,192,997 L 6,820,928 L 8,240,369 L 5,148,009
Cost of revenues 3,551,546 5,906,181 7,206,590 4,585,523
----------- ----------- ----------- -----------
GROSS PROFIT 641,451 914,747 1,033,779 562,486
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative expenses 397,359 579,467 965,239 466,055
Depreciation 12,986 18,419 22,057 13,608
----------- ----------- ----------- -----------
Total operating expenses 410,345 597,886 987,296 479,663
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 231,106 316,861 46,483 82,823
INTEREST INCOME (EXPENSE)
Interest income 54 491 334 -
Interest expense (17,269) (17,271) (46,656) (28,793)
----------- ----------- ----------- -----------
Total interest income (expense) (17,215) (16,780) (46,322) (28,793)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 213,891 300,081 161 54,030
INCOME TAXES (67,058) (100,455) 172 (17,830)
----------- ----------- ----------- -----------
NET INCOME L 146,833 L 199,626 L 333 L 36,200
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 12,500 12,500 11,875 11,875
NET INCOME PER COMMON SHARE L 11.75 L 15.97 L 0.03 L 3.05
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
F-4
<PAGE>
HAMMER DISTRIBUTION LIMITED
CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(POUNDS STERLING)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID IN CAPITAL
------------------ SHARE REDEMPTION RETAINED
SHARES AMOUNT CAPITAL RESERVE EARNINGS TOTAL
-------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1993 12,500 L 12,500 L 875 - L 91,954 L 105,329
Net income for period - - - - 146,833 146,833
Dividends payable - - - - (81,375) (81,375)
-------- -------- ------- ------- --------- ---------
Balance, January 31, 1994 12,500 12,500 875 - 157,412 170,787
-------- -------- ------- ------- --------- ---------
Net income for period - - - - 199,626 199,626
Dividends payable - - - - (53,600) (53,600)
-------- -------- ------- ------- --------- ---------
Balance, January 31, 1995 12,500 12,500 875 - 303,438 316,813
-------- -------- ------- ------- --------- ---------
Net income for period - - - - 333 333
Purchase of own shares (625) (625) (125) 750 (10,000) (10,000)
-------- -------- ------- ------- --------- ---------
Balance, January 31, 1996 11,875 11,875 750 750 293,771 307,146
-------- -------- ------- ------- --------- ---------
Net income for period (unaudited) - - - - 36,200 36,200
-------- -------- ------- ------- --------- ---------
BALANCE, JULY 31, 1996 (UNAUDITED) 11,875 L 11,875 L 750 L 750 L 329,971 L 343,346
-------- -------- ------- ------- --------- ---------
-------- -------- ------- ------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
F-5
<PAGE>
HAMMER DISTRIBUTION LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
(POUNDS STERLING)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31, JULY 31,
1994 1995 1996 1996
----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income L 146,833 L 199,626 L 333 L 36,200
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 12,986 18,419 22,057 13,608
Loss (gain) loss on disposal of fixed assets (520) 25 (677) -
Decrease (increase) in accounts receivable (40,135) (559,544) (334,931) 227,624
Decrease (increase) in inventories 29,170 (150,858) (162,845) (72,037)
Decrease (increase) in prepaid expenses 32,043 (4,451) (40) (2,449)
(Increase) in shareholders advances - - - (30,000)
Increase (decrease) in income taxes 2,306 33,397 (13,572) (71,725)
Decrease (increase) in other current assets (1,250) (36,525) 37,625 (150)
Increase in accounts payable and accrued liabilities 14,425 562,391 209,211 152,689
--------- --------- --------- ----------
Net cash provided (used) by operating activities 195,858 62,480 (242,839) 253,760
CASH FLOWS (TO) FROM INVESTING ACTIVITIES:
Purchase of equipment (7,585) (30,639) (20,093) (19,708)
Proceeds from disposal of equipment 10,000 7,000 22,005 -
--------- --------- --------- ----------
Net cash provided (used) by Investing Activities 2,415 (23,639) 1,912 (19,708)
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Repayment of notes payable (20,452) - - (367,616)
Issuance of notes payable - 116,642 318,143 -
Payments of capital lease obligations (12,840) (13,182) (20,294) (3,998)
Payment of dividends (81,375) (53,600) - -
Purchase of own shares - - (10,000) -
--------- --------- --------- ----------
Net Cash provided (used) by Financing Activities (114,667) 49,860 287,849 (371,614)
NET INCREASE (DECREASE) IN CASH 83,606 88,701 46,922 (137,562)
Cash at beginning of period 134,683 218,289 306,990 353,912
--------- --------- --------- ----------
Cash at end of period L 218,289 L 306,990 L 353,912 L 216,350
--------- --------- --------- ----------
Cash paid for interest expense L 17,269 L 17,271 L 46,656 L 28,793
--------- --------- --------- ----------
--------- --------- --------- ----------
Cash paid for income taxes L 64,752 L 67,058 L 10,900 L 89,555
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
F-6
<PAGE>
HAMMER DISTRIBUTION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, 1996 AND
FOR THE SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
==================================================
NOTE 1 - THE COMPANY AND ITS OPERATIONS
Hammer Distribution Limited was formed in 1992. Currently the company
employs over 24 staff operating from the company's offices in Basingstoke,
England.
The Company supplies storage solutions and computer sub-systems for use
within many commercial, industrial, scientific and government applications.
NOTE 2 - BASIS OF PRESENTATION
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
In the opinion of management, the accompanying financial statements contain
all material adjustments consisting only of normal recurring adjustments
necessary to present fairly the financial condition, the results of
operations, the changes in stockholders' equity and cash flows.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FOREIGN EXCHANGE
The accompanying condensed financial statements are presented in pounds
sterling (L), the currency in which the Company conducts its normal business.
At January 31, 1994, 1995 and 1996 and July 31, 1996, the exchange rate was
L1 = US $1.50, US $1.588, US $1.511 and US $1.56, respectively.
REVENUE SOURCES AND RECOGNITION
The Company's primary sources of revenue are from the sale of computer
hardware. Revenue from the sale of computer hardware is recognized at the
time of shipment.
INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market value. Inventories consist primarily of computer hardware for resale.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on a
straight-line basis using estimated useful lives of four years for all
assets. Depreciation expense was L12,986, L18,419, L22,057 and L13,608
(unaudited) for the years ended January 31, 1994, 1995, 1996 and the six
months July 31, 1996, respectively.
CONCENTRATION OF CREDIT RISK
Ongoing credit evaluations of customers' financial condition are performed
and, generally, no collateral is required. The Company maintains reserves
for potential credit losses and such losses, in the aggregate have not
exceeded management's expectations. Customers are located throughout the
United Kingdom.
F-7
<PAGE>
HAMMER DISTRIBUTION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, 1996 AND
FOR THE SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
==================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is calculated by dividing net income (loss)
by the weighted average number of common stock and common stock equivalents
outstanding during the period. When common stock equivalents have an
antidilutive effect on earnings (loss) per share they are excluded from the
calculation.
UNAUDITED FINANCIAL STATEMENTS
The unaudited statements for the six months ended July 31, 1996 reflect in
the opinion of the management, all adjustments (consisting of only normal
recurring adjustments) considered necessary to present fairly the results of
such periods.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:-
JANUARY 31, JANUARY 31, JULY 31,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
Vehicles L 43,400 L 48,327 L 58,861
Leasehold improvements 10,036 10,036 10,036
Computer equipment 35,552 47,028 56,202
---------- ---------- ---------
Less accumulated depreciation (30,676) (30,661) (44,269)
---------- ---------- ---------
L 58,312 L 74,730 L 80,830
---------- ---------- ---------
---------- ---------- ---------
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:-
JANUARY 31, JANUARY 31, JULY 31,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
Value Added Tax (VAT) liability L 87,059 L 42,570 L 28,882
Payroll taxes - 41,116 15,246
---------- ---------- ---------
L 87,059 L 83,686 L 44,128
---------- ---------- ---------
---------- ---------- ---------
F-8
<PAGE>
HAMMER DISTRIBUTION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, 1996 AND
FOR THE SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
==================================================
NOTE 6 - INCOME TAXES
Effective April 1, 1990, the Company adopted Statement of Financial Standards
No. 109 (SFAS 109). Under this method, deferred income taxes are recorded to
reflect the tax consequences in future years of temporary differences between
the tax basis of assets and liabilities and their financial reporting amounts
at the end of each reporting period based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances will be established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expenses is the tax payable for the current period and
any change during the period in deferred tax assets and liabilities. The
adoption of SFAS 109 had no material effect on the Company's consolidated
financial statements.
The Company is a limited company within the meaning of the United Kingdom
income and Corporation Taxes Act of 1970, as amended.
The provision (benefit) for income taxes is as follows:
JANUARY 31, JULY 31,
------------------------------- -----------
1994 1995 1996 1996
-------- --------- ------- -----------
(UNAUDITED)
Current L 67,058 L 100,455 L (172) L 17,830
Deferred - - - -
-------- --------- ------ --------
Total L 67,058 L 100,455 L (172) L 17,830
-------- --------- ------ --------
-------- --------- ------ --------
A reconciliation of the provision for income taxes at the United Kingdom
statutory income tax rate to the Company's income taxes is as follows:
JANUARY 31, JULY 31,
------------------------------- -----------
1994 1995 1996 1996
-------- --------- ------- -----------
(UNAUDITED)
Expected tax at UK rate L 70,584 L 99,027 L 53 L 17,830
Other (3,526) 1,428 (225) -
-------- --------- ------ --------
L 67,058 L 100,455 L (172) L 17,830
--------- --------- ------- --------
--------- --------- --------- --------
There are no significant temporary differences between the financial
statements values of assets and liabilities and the tax values of assets and
liabilities.
F-9
<PAGE>
HAMMER DISTRIBUTION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, 1996 AND
FOR THE SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
==================================================
NOTE 7 - LEASE COMMITMENTS
CAPITAL LEASE OBLIGATIONS
The Company leases assets under capital lease obligations which are included
in property and equipment as:
JANUARY 31, JULY 31,
1996 1996
----------- -----------
(UNAUDITED)
Vehicles L 44,128 L 44,128
Others - -
Less accumulated depreciation (3,715) (9,229)
--------- --------
L 40,413 L 34,899
--------- --------
--------- --------
Future minimum lease payments under capital leases together with the present
value of net minimum lease payments at:
JANUARY 31, JULY 31,
1996 1996
----------- -----------
(UNAUDITED)
1996-1997 L 11,278 L 5,639
1997-1998 11,278 11,278
1998-1999 21,416 21,416
--------- --------
Total minimum lease payments 43,972 38,333
Less amount representing interest 6,515 4,874
--------- --------
Present value of net minimum lease payments 37,457 33,459
Less current portion 8,180 8,562
--------- --------
L 29,277 L 24,897
--------- --------
--------- --------
OPERATING LEASES
The Company leases various equipment and vehicles under operating leases
which expire from January 1996 through January 1998.
The Company leases an office/warehouse facility in Basingstoke, England for
L22,000 per annum, which expires in September 1999.
Commitments under operating leases in existence at July 31, 1996 (unaudited)
are as follows:
1997 L 18,685
1998 30,685
1999 22,000
2000 14,667
Thereafter -
--------
L 86,037
--------
--------
Rent expense for the operating leases for the years ended January 31, 1994,
1995, 1996 and six months ended July 31, 1996 (unaudited) was L9,980,
L10,981, L22,000 and L11,000, respectively.
F-10
<PAGE>
HAMMER DISTRIBUTION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, 1996 AND
FOR THE SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
==================================================
NOTE 8 - ECONOMIC DEPENDENCY
The Company has had three suppliers upon whom it depended upon for greater
than 10% of its product supplies in the following years for all products
purchased during the years ended January 31:
1995 1996 1996
------ ------- -----------
(UNAUDITED)
Supplier A 59% 43% 32%
Supplier B 14% 17% 16%
Supplier C - 21% 16%
The Company had no customers who accounted for more than 10% of revenue for
the years ended January 31, 1994, 1995 and 1996 and for the six months to
July 31, 1996.
NOTE 9 - SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR NONCASH INVESTING AND FINANCING ACTIVITIES
1994 1995 1996 1996
-------- -------- --------- -----------
(UNAUDITED)
The Company financed/
the purchase of
equipment with a
capital lease
obligation L 13,500 L 13,175 L 39,710 L -
-------- -------- -------- ------
-------- -------- -------- ------
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED)
Effective August 21, 1996, 4Front Software International, Inc. (4Front)
acquired all of the outstanding shares of the Company for cash. Details of
the purchase are discussed in the accompanying unaudited pro forma financial
statements (See F-17).
4Front (a United States public company), operating through 4Front Group (a
United Kingdom wholly owned subsidiary) is a computer software sales,
consultancy, service and support company specializing in systems integration,
connectivity, networking and communications products, office system design
and installation services.
F-11
<PAGE>
ITEM 2. ACQUISITION OF ASSETS.
On August 21, 1996 4Front Software International Inc., acquired all of
the issued and outstanding stock of Hammer Distribution Limited ("Hammer"),
based in the United Kingdom. The purchase price was L1.85 million cash ($2.9
million) subject to certain conditions as set forth below.
Pursuant to the stock purchase agreement, L1.1 million cash ($1.7
million) was paid to the stockholders of Hammer from available cash resources
of the registrant.
If the profits from the Hammer subsidiary for the year ended January 31,
1997 are L425,000 ($650,000) or greater, then the remaining L750,000 ($1.2
million) is paid. If the profits are less than L240,000 ($370,000) then no
part of the L750,000 ($1.2 million) is paid. If profits are between L240,000
($370,000) and L425,000 ($650,000) then the L750,000 ($1.2 million)
remaining consideration is adjusted downwards to become such lower figure as
represents the same percentage by which the 1997 profits exceeds L240,000
($370,000) in relation to the shortfall of L185,000 ($285,000) from the
L425,000 ($650,000) profits which are required to affect maximum payment.
The purchase price was paid in cash from available corporate funds.
There is no material relationship between the registrant, it's affiliates,
officers or directors and any affiliate, officer or director of Hammer
Distribution Limited.
Hammer is a United Kingdom supplier of storage solutions and computer
sub-systems, with revenues of approximately L10 million ($15 million). The
registrant believes that the acquisition of Hammer will allow the combined
organizations to expand on the market for storage solutions and sub-systems
and to help the registrant to secure a significant percentage of the United
Kingdom market.
F-12
<PAGE>
4FRONT SOFTWARE INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
4FRONT SOFTWARE
INTERNATIONAL, INC. HAMMER
AND DISTRIBUTION
SUBSIDIARIES LIMITED
JANUARY 31, JANUARY 31, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS CONSOLIDATED
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUES $32,248,697 $12,978,581 $ - $45,227,278
------------ ----------- --------- -----------
Cost of revenues 20,807,858 11,350,379 - 32,158,237
Write down of software development costs 755,184 - - 755,184
------------ ----------- --------- -----------
GROSS PROFIT 10,685,655 1,628,202 - 12,313,857
------------ ----------- --------- -----------
OPERATING EXPENSES:
Selling, general and administrative expenses 9,566,257 1,520,251 - 11,086,508
Depreciation 356,379 34,740 - 391,119
Amortization 203,938 - 133,590(4) 337,528
------------ ----------- --------- -----------
Total operating expenses 10,126,574 1,554,991 133,590 11,815,155
------------ ----------- --------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES
AND SHARE OF RESULTS IN EQUITY INVESTEE 559,081 73,211 (133,590) 498,702
INTEREST INCOME (EXPENSE):
Interest income 14,189 526 - 14,715
Interest expense (258,421) (73,483) - (331,904)
------------ ----------- --------- -----------
Total interest expense (244,232) (72,957) - (317,189)
------------ ----------- --------- -----------
INCOME BEFORE INCOME TAXES AND SHARE OF RESULTS
IN EQUITY INVESTEE 314,849 254 (133,590) 181,513
SHARE OF RESULTS IN EQUITY INVESTEE:
Write down of investment in and advances to
equity investee (581,770) - - (581,770)
Share of operating (loss) of equity investee (179,246) - - (179,246)
------------ ----------- --------- -----------
Total share of results in equity investee (761,016) - - (761,016)
------------ ----------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (446,167) 254 (133,590) (579,503)
INCOME TAXES 205,784 (271) - 205,513
------------ ----------- --------- -----------
NET INCOME (LOSS) $ (651,951) $ 525 $(133,590) $ (785,016)
------------ ----------- --------- -----------
------------ ----------- --------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ (0.29)
Weighted average number of common shares
outstanding 2,742,614
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STAEMENTS AND
EXPLANATORY HEADNOTE
F-13
<PAGE>
4FRONT SOFTWARE INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
4FRONT SOFTWARE HAMMER
INTERNATIONAL, INC. DISTRIBUTION
AND SUBSIDIARIES LIMITED
JULY 31, JULY 31, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS CONSOLIDATED
------------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $11,198,970 $ 337,506 $(1,700,000)(2) $ 9,836,476
Accounts receivable, net 8,044,793 2,062,014 - 10,106,807
Inventories 4,098,100 840,349 - 4,938,449
Deposits 29,970 - - 29,970
Prepaid expenses 429,673 26,453 - 456,126
Shareholders advances - 46,800 - 46,800
Income tax receivable 165,053 4,168 - 169,221
Other 274,802 468 - 275,270
------------ ---------- ------------ -----------
Total Current Assets 24,241,361 3,317,758 (1,700,000) 25,859,119
PROPERTY AND EQUIPMENT, net 1,065,111 126,095 - 1,191,206
EQUITY INVESTEE 339,421 - - 339,421
RECEIVABLE, related party 644,356 - - 644,356
INTANGIBLE ASSETS 1,950,660 - 1,201,162 (3) 3,151,822
OTHER 616,528 - - 616,528
------------ ---------- ------------ ------------
$28,857,437 $3,443,853 $ (498,838) $31,802,452
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STAEMENTS AND
EXPLANATORY HEADNOTE
F-14
<PAGE>
4FRONT SOFTWARE INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
4FRONT SOFTWARE HAMMER
INTERNATIONAL, INC. DISTRIBUTION
AND SUBSIDIARIES LIMITED
JULY 31, JULY 31, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS CONSOLIDATED
------------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $4,697,120 $2,174,526 $ 100,000 (3) $ 6,971,646
Accrued liabilities 1,058,506 68,840 - 1,127,346
Shareholders advances 391,842 - - 391,842
Lines of credit-bank - - - -
Notes payable - 584,857 - 584,857
Capital lease obligations, current portion 77,013 13,357 - 90,370
Income taxes payable 271,203 27,815 - 299,018
Deferred revenue 2,393,320 - - 2,393,320
----------- ---------- --------- -----------
Total Current Liabilities 8,889,004 2,869,395 100,000 11,858,399
CAPITAL LEASE OBLIGATIONS, less current
portion 101,091 38,839 - 139,930
----------- ---------- --------- -----------
Total Liabilities 8,990,095 2,908,234 100,000 11,998,329
----------- ---------- --------- -----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, no par value 23,164,689 18,525 (18,525)(3) 23,164,689
Additional paid in capital - 1,170 (1,170)(3) -
Capital redemption resource - 1,170 (1,170)(3) -
Accumulated (deficit) (3,367,177) 514,754 (577,973)(3) (3,430,396)
Foreign currency adjustment 69,830 - - 69,830
----------- ---------- --------- -----------
Total Stockholders' Equity 19,867,342 535,619 (598,838) 19,804,123
----------- ---------- --------- -----------
$28,857,437 $3,443,853 $(498,838) $31,802,452
----------- ---------- --------- -----------
----------- ---------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STAEMENTS AND
EXPLANATORY HEADNOTE
F-15
<PAGE>
4FRONT SOFTWARE INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
4FRONT SOFTWARE
INTERNATIONAL, HAMMER
INC. AND DISTRIBUTION
SUBSIDIARIES LIMITED
JULY 31, JULY 31, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS CONSOLIDATED
--------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
REVENUES $20,610,663 $7,922,786 $ - $28,533,449
------------ ---------- --------- -----------
Cost of revenues 13,934,697 7,057,120 - 20,991,817
Write down of software development costs - - - -
------------ ---------- --------- -----------
GROSS PROFIT 6,675,966 865,666 - 7,541,632
------------ ---------- --------- -----------
OPERATING EXPENSES:
Selling, general and administrative expenses 5,544,194 717,259 - 6,261,453
Depreciation 154,396 20,943 - 175,339
Amortization 123,740 - 63,219 (4) 186,959
------------ ---------- --------- -----------
Total operating expenses 5,822,330 738,202 63,219 6,623,751
------------ ---------- --------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES
AND SHARE OF RESULTS IN EQUITY INVESTEE 853,636 127,464 (63,219) 917,881
INTEREST INCOME (EXPENSE):
Interest income 81,588 - - 81,588
Interest expense (128,936) (44,312) - (173,248)
------------ ---------- --------- -----------
Total interest expense (47,348) (44,312) - (91,660)
------------ ---------- --------- -----------
INCOME BEFORE INCOME TAXES AND SHARE OF RESULTS
IN EQUITY INVESTEE 806,288 83,152 (63,219) 826,221
SHARE OF RESULTS IN EQUITY INVESTEE:
Write down of investment in and advances to
equity investee - - - -
Share of operating (loss) of equity investee (124,392) - - (124,392)
------------ ---------- --------- -----------
Total share of results in equity investee (124,392) - - (124,392)
------------ ---------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 681,896 83,152 (63,219) 701,829
INCOME TAXES 170,474 27,440 - 197,914
------------ ---------- --------- -----------
NET INCOME (LOSS) $ 511,422 $ 55,712 $(63,219) $ 503,915
------------ ---------- --------- -----------
------------ ---------- --------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ 0.12
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STAEMENTS AND
EXPLANATORY HEADNOTE
F-16
<PAGE>
4FRONT SOFTWARE INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NOTE 1 - PRO FORMA ADJUSTMENTS
The adjustments relating to the pro forma consolidated balance sheets are
prepared assuming the acquisition of Hammer was consummated at the balance
sheet date. The adjustments relating to the pro forma consolidated
statements of operations are recorded assuming the acquisition of Hammer was
consummated at the beginning of the period for all periods presented.
The contingent consideration payable upon the conditions set out in Item 2.
"Acquisition of assets" could give effect to an additional cash payment of a
maximum of L750,000 ($1.2 million). If the conditions set out were met the
goodwill on acquisition would increase by $1.2 million with a corresponding
increase to goodwill amortization of $120,000 per annum.
NOTE 2
To record the initial purchase price of $1,700,000.
NOTE 3
To eliminate common stock acquired and to record costs incurred in excess of
the fair market value of the assets acquired as goodwill.
NOTE 4
To record amortization of goodwill using the straight-line method over 10
years.
F-17
